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Down Payment Myths

I read an article on a financial website that is concerning to me. What the financial manager said about purchasing a home will probably deter many first time home buyers from getting into the market. It may also deter move up buyers from selling their starter home and moving into a bigger home.

While the decision to purchase a home is a big one, and it should be carefully planned, people should understand that home ownership is not necessarily out of reach, and while it’s always good to put as much money as you can afford as a down payment, it’s not always necessary to have a 20% down payment.

In fact, if you are considering renting a home in South Florida, you need to know that rentals are currently in short supply, and in many cases,the mortgage payments may actually be lower than the cost of rent. Also, the cost of moving from one rental to another is very close to the cost of a 3.5% down payment on an FHA loan program. The difference between a 3.5% down payment and a 20% down payment is substantial, but the difference in the mortgage payment can be as little as a couple of hundred dollars. In the meantime, while trying to save several more thousand dollars for a down payment, your rent will very likely have gone up. The price of the home will have likely gone up as well.

There are also other programs available in certain municipalities where a first time home buyer can get assistance with down payments and closing costs. In some instances there are loans which don’t require a down payment at all. Each of these options comes with very strict income limitations, or limits on the location of the property, so they won’t work everywhere. I am sharing this solely for the purpose of illustrating there are many ways for people to enter home ownership.

Yes, it’s important to save up your money. It’s also important, no matter which option you choose, to understand that it costs money to own and maintain a home. Having a cushion of a few months payments in the bank, should something happen, is something you should ave for. Making sure you don’t choose a home which is beyond your reach financially is also important. I know everyone wants their dream home, but I am here to tell you, buy a home you can afford in good times and bad. Then, hopefully it will accrue equity, and you can buy a home closer to your dreams in the next go around.